Settling debts of another soveriegn state has to be scrutinized

Over sixty five heavily indebted prominent businesses in the country have been crying out to the government of Uganda to bail them out with about 1.3 trillion shillings, said to have accrued from bank loans at high interest rates. To the tax payer, this is not good news; reason being tax payer’s money is likely to be the source and increasing public debt as well as affecting the poor!

It has been said that some companies actually supplied goods and services to the Republic of South Sudan but may not have been paid, in some cases of over the years like since the war broke out in that country. The circumstances or policy conditions that the Government of Uganda has to settle debt obligations of another sovereign State need to be explored. Similarly, in 2007 Ugandan private sector companies were involved in the 2007 Kenya electoral period and mayhem, with huge losses. Were these supported by Government through a financial facility to counteract their losses? Otherwise, there may be a risk of preferential treatment of the South Sudan case. Should attention also be paid to other exporting firms that export elsewhere but have suffered instances of financial distress?

As if that is not enough, it is likely to increase the public debt rapidly as well as, domestic debt which is a public concern. Citizens should note that if the entire national budget was not available for direct service delivery due to debt repayment and restructuring, then where will the 1.3 trillion come from surely!While the debt is increasing very rapidly, the rate of economic growth has been reducing implying that service delivery is likely to suffer. This should raise concerns that the state of the economy will lead to more stress on companies. This is likely to reduce employment, tax revenues, public service delivery and overall growth. Much as it is the global trend to bail out struggling entities for example US and Greece, there should be clear consideration of individual country context. Uganda does not meet some of the critical conditions related to reserves and fiscal space. The general recommendation is for countries to engage in a bail-out if they have sufficient reserves and/or fiscal space to avoid an inflationary situation or depletion of national reserves.

However much a bailout is the solution to the problem; the economy ought to grow fast enough to generate activity for these companies to perform at full capacity. Some have ended up investing in personal properties such as houses and expensive cars which they think are assets but are not. They have no multiplier effect on the economy. Bailing out such companies may not promise well for the public who pay taxes and further, if at all bailed out, will they stop the financial indiscipline!